Share capital requirement to be removed 2023
On 13 April Estonian parliament adopted a brand-new Business Register Act, which abolishes the minimum share capital requirement for the Estonian private limited companies (OÜ). Most Estonians have lived their entire adult lives knowing that share capital of 2,500 euros is needed for a limited company. Since the first Estonian Commercial Code of 1995 the share capital requirement has been 40,000 Estonian crowns which was converted to 2,556 euros when Estonia adopted the euro in 2011. Later it was rounded to 2,500 euros.
Share capital requirement has been the same for 24 years
According to the current Commercial Code, the share capital of a private limited company must be at least 2,500 euros. The amount of the minimum capital has been the same for 24 years, but considering the purchasing power of the crown in 1995, it was a huge obstacle for any starting entrepreneur with no free cash. Therefore it created a market for hustlers who sold off the shelf companies (riiulifirma in Estonian) that already had a registered share capital of 40,000 Estonian crowns. In reality it was only paid in for the company registration and then withdrawn from company bank account to be shown as existing in cash. The buyer then bought a company with a balance sheet of 40,000 crowns in cash and confirmed it in a notary office.
Share capital payments postponed since 2011
The 2011 amendments to the Commercial Code allowed natural persons to establish an Estonian limited company without making share capital contributions during the formation. Since 1 January 2011, it was possible therefore to start companies even if you did not have 2,500 euros to deposit.
This option has been widely used by Estonian e-residents as it is difficult to find any financial institution that would be willing to open a “starting account” for a non-resident board member registering an Estonian company remotely. This type of service has been available online to Estonian residents being clients of the main banks operating in Estonia (Swedbank, SEB, Luminor, LHV).
The current Commercial Code does not set a specific deadline for the payment of share capital and therefore it is possible that the share capital is not deposited at all. Most e-residents register their companies without depositing share capital during the formation. The API service of the Estonian Business Register that is used by Unicount is also limited to only this type of formation.
Registering company share capital
Registering company share capital has been problematic in the past for some e-residents who have not been able to open a business account with an EEA licensed credit or payment institution to obtain the share capital deposit certificate required by the Estonian Business Register. Before 1 January 2019, it had to be a credit institution in Estonia, which meant that if no credit institution (bank) was happy to accept you as a client you could not even register company share capital to distribute dividends legally.
Fortunately, the Estonian parliament passed an amendment in support of e-Residency by changing the country’s Commercial Code to allow Estonian companies to use any credit or payment institution business accounts in any European Economic Area country for depositing share capital. This opened up the door for fintech companies such as Holvi, Wise, and Paysera who were the first non-Estonian financial institutions who started accepting e-resident founded Estonian companies.
Share capital requirement will be 1 euro cent
Starting from 1 February 2023 the founders and later the shareholders need to assess the amount of share capital that is necessary to start and run a particular private limited company. As the minimum nominal value of a share is one euro cent according to the § 148 (1) of the Commercial Code, the share capital of an Estonian limited company can in fact be one euro cent if it has a single founder and shareholder. Each additional shareholder would mean at least 1 more euro cent then.
A special provision added to the Bankruptcy Act
However, there is a new provision added to the Bankruptcy Act § 29 (91) making a shareholder of a private limited company with a share capital of less than 2,500 euros liable for the fees and expenses of the temporary trustee in a bankruptcy proceeding. For example, if the share capital of a private limited company is 1 euro and the company does not have enough assets to cover the trustee fees and expenses, the potential liability of the shareholder is 2499 euros.
The new Business Register Act will enter into force on 1 February 2023.
Thanks for reading
We hope you enjoyed this article. If you have more questions check out Unicount’s extensive support articles here.